- Uptrend in quarterly marketing sales of c.IDR6.1tn in 2016: Supported by its “price amnesty program” for its BSD City project, BSDE recorded around IDR2tn of marketing sales in 4Q16, cementing an uptrend since 1Q16 (Exhibit 6). The company provided discounts of up to 15% during phase I (Oct–Nov), which resulted in c.IDR1.1tn of pre-sales, while another c.IDR900bn was achieved during phase II (Nov–Dec) given lower discounting. As a result, BSDE expects 2016 marketing sales to reach around IDR6.1tn, or 90% of its full-year original target, in line with our full-year estimate. We expect to see 9% y-y marketing sales growth in 2017, of which 72% of total sales would be derived from the BSD City project. This report marks a transfer of analyst coverage.

- Additional 2017 top-line growth from 2 JV projects: Backed by BSDE’s two recent JVs – the Balaraja toll road and the Mitsubishi Smart Living project – we expect the company to book an additional c.IDR1.8tn of revenue this year. Total land sales value for the Balaraja toll road should be around IDR900bn (50ha area x IDR1.8mn/sqm ASP) for the first 10km out of 30km of total toll-road length. BSDE holds 50% equity in this project, while both Astratel and Kompas control the other 50%. The Mitsubishi project, which consists of landed and shop houses, has total estimated value of c.IDR1.4tn (19ha land area x IDR7.5mn/sqm ASP), of which IDR500bn was booked in 2016 with the remainder to be recorded in 2017.

- New project launches in Jakarta and Surabaya: Apart from BSD City, BSDE is expanding further into regional areas, having launched two apartments in Jakarta: (1) Southgate, located in Tanjung Barat, with starting prices at IDR30mn/sqm; a mixed-use development project with a retail mall, offices, apartments, a hotel and condos for sale; and (2) Aerium, located in Taman Permata Buana, with 1.8ha of land area comprised of a two-tower condominium and several townhouses for sale. This is a JV project with Itochu, a multinational general trading company based in Japan, with BSDE owning a 51% stake. In addition, the company is planning to launch one of six new apartment towers (1,000 units/tower) in Benowo, Surabaya, with starting prices of IDR300mn/unit.

- Benefiting from operation of UNVR’s new office: Unilever Indonesia ($UNVR) is moving its headquarters to BSD Green Office Park in January–February of this year, bringing some 7k workers to the benefit of BSDE’s residential area project in BSD city. As such, we expect the land ASP in BSD City to rise from IDR12mn/sqm at present to IDR13.5mn/sqm in 2017.

BUY with unchanged IDR2,350 TP
Recent market outperformance (Exhibit 4) likely was based on solid pre-sales. We believe this is sustainable due to BSDE’s expansion beyond its property development in BSD City, providing longer-term growth and stability through geographic diversification. We apply a 55% discount to our end-2017F NAV to determine our unchanged IDR2,350 12M TP. Risks: BSD City infrastructure delays and higher high-rise property demand.

MYOR posted impressive growths despite declining margins, helped by decent sales growth and a surprise drop in ads and promotion spending to a 5-year low. The former is encouraging, but the latter is actually not.

Revenue growth offsets weaker gross margin. Domestic sales (+35% YoY in 9M16) continued to drive growth, albeit from a low base (-15% YoY in 9M15). Weaker export sales growth is expected, partly due to stronger IDR, but the rebound in exports growth to 18% YoY in 3Q16 from -1% in 2Q16 helped overall momentum. That said, this manages to offset the negative impact from falling coffee (-2.4ppt QoQ) and confectioneries (-0.6ppt QoQ) in light of higher coffee and sugar prices, which have been reflected in the increase in raw material inventories of late.

Alarming drop in A&P spending. We see the 59% QoQ drop in ads & promotion (A&P) spending as alarming for a fastgrowing consumer company. It implies a 5-year low A&P-to-sales ratio at 4.7%, much lower than the 10.5% ratio in 1H16. As a comparison, the A&P spending growth for UNVR/ICBP was 0%/34% YoY. We have yet to clarify with the management on this.

4Q16 should be showering with gifts. Sales are seasonally strong in Q4, especially for exports: IDR today has weakened by 119bps QoQ, and exports are half of sales.

Neutral call unchanged, waiting for more clarity. We maintain our Neutral call and Rp1,550 price target. Our DCF based price target implies 24x 2017F PE. We may review our numbers as we seek further clarification from the management.

Indonesia ice cream market size (USD100m as of 2015) will likely to accelerate faster which is driven by more competition and low ice cream consumption. According to Euromonitor data, ice cream market size is estimated to grow c9% Cagr during 2015-2020, second highest after India. $ICBP has a total of 59 SKU for ice cream with additional 7 new SKU under “Nusantara” flavor which are competing directly with its competitors – $UNVR and Wings.

Did you know? That ICBP’s Indomie instant noodle has more than 40 different flavors? Since inception in Sept 1970, Indomie has been the leading instant noodle in Indonesia and around the world.

Offering different flavor such as Fried Noodle, Soto Mie, Tom Yum, Bulgogi, and Real Meat, Indomie is now available in more than 100 countries. Also worth noting that in present day, Indonesia is the second largest instant noodle consumer in the world at 14.5bn packs/year, after China which consumes 44bn packs/year.

Indofood ($INDF) through its subsidiary Indofood CBP ($ICBP) has been innovative with its products to appeal to “demanding” customers both domestically and overseas. As such, we can see a wide range of products from the company now available for our choosing.

New product launch is a key strategy for all consumer companies to grab market share. Reason why we see consumer staple companies such as Unilever ($UNVR) and Wings also aggressively launching new line of products.

Today consumer analyst Merlissa Trisno points out that INDF will keep its pace in product launch to grab market share. INDF will see stronger revenue growth potential for its CBP division at 12.3% in 17CL driven by its new products launching particularly in the dairy and beverage divisions.

Thus, Merlissa expects lower earnings growth potential for 17CL at high single-digit level of 8.1% as compared to 25.6% in 16CL.

While higher CPO price results in higher cost for CBP, INDF the parent company is a net beneficiary given its upstream plantation exposure (15-20% of Ebit). 4Q16 CPO price has exceeded RM2,800/t (+5% qoq) and close to RM3,000/t in the week of November 11.

This spells upside for our current regional CPO price forecast of RM2,450/t and RM2,600/t in 16-17CL respectively. Our sensitivity analysis suggests that for every 10% CPO price increase it translates to 6-8% EPS upside at INDF level, all else equal.

Merlissa’s thesis on CPO is supported by CLSA’s plantation analyst, Chuanyao Lu (CY), who in his latest report emphasized the persistent low inventory level in Malaysia and China due to El-Nino aftermath. CPO inventories in Malaysia stood at 1.57mt which is virtually unchanged from Sep and is 45% lower compared to 2015.

As such, CY expects CPO prices to continue its uptrend. And with production recovery on the horizon, we expect this to translate into better earnings for the industry.

Circling back to INDF, Merlissa highlights that INDF claims that the SGD416m proceed from 52.9% China Minzhong (SG:K2N)
divestment will likely be received around December 2016, subject to the delisting and privatization process in SGX. Merlissa has incorporated ~Rp370bn divestment loss in her 2016 financial forecast.

Post the transaction, net gearing will drop to 17% in 2016-17CL, from 33% in 2015. We estimate interest cost saving of around Rp100bn but with lower earnings contribution from Minzhong
which might lead to a net net Rp60-70bn cut in 2017 earnings.

In summary, Merlissa adjusts INDF’s EPS down by 6% for 17CL and 4.1% for 18CL to factor in a lower EPS assumption for the CBP division and lower Minzhong ownership (from 82.9% to 29.9%).

Despite lower earnings assumptions, Merlissa maintains her BUY recommendation and target price at Rp10,500/sh for INDF as she rolls forward her SOTP-based valuation to end-2017. The target price implies a 20x 17CL PE.

Did you know? That ICBP’s Indomie instant noodle has more than 40 different flavors? Since inception in Sept 1970, Indomie has been the leading instant noodle in Indonesia and around the world.

Offering different flavor such as Fried Noodle, Soto Mie, Tom Yum, Bulgogi, and Real Meat, Indomie is now available in more than 100 countries. Also worth noting that in present day, Indonesia is the second largest instant noodle consumer in the world at 14.5bn packs/year, after China which consumes 44bn packs/year.

Indofood ($INDF) through its subsidiary Indofood CBP ($ICBP) has been innovative with its products to appeal to “demanding” customers both domestically and overseas. As such, we can see a wide range of products from the company now available for our choosing.

New product launch is a key strategy for all consumer companies to grab market share. Reason why we see consumer staple companies such as Unilever ($UNVR) and Wings also aggressively launching new line of products.

Today consumer analyst Merlissa Trisno points out that INDF will keep its pace in product launch to grab market share. INDF will see stronger revenue growth potential for its CBP division at 12.3% in 17CL driven by its new products launching particularly in the dairy and beverage divisions.

Thus, Merlissa expects lower earnings growth potential for 17CL at high single-digit level of 8.1% as compared to 25.6% in 16CL.

While higher CPO price results in higher cost for CBP, INDF the parent company is a net beneficiary given its upstream plantation exposure (15-20% of Ebit). 4Q16 CPO price has exceeded RM2,800/t (+5% qoq) and close to RM3,000/t in the week of November 11.

This spells upside for our current regional CPO price forecast of RM2,450/t and RM2,600/t in 16-17CL respectively. Our sensitivity analysis suggests that for every 10% CPO price increase it translates to 6-8% EPS upside at INDF level, all else equal.

Merlissa’s thesis on CPO is supported by CLSA’s plantation analyst, Chuanyao Lu (CY), who in his latest report emphasized the persistent low inventory level in Malaysia and China due to El-Nino aftermath. CPO inventories in Malaysia stood at 1.57mt which is virtually unchanged from Sep and is 45% lower compared to 2015.

As such, CY expects CPO prices to continue its uptrend. And with production recovery on the horizon, we expect this to translate into better earnings for the industry.

Circling back to INDF, Merlissa highlights that INDF claims that the S$416m proceed from 52.9% China Minzhong (SG:K2N) divestment will likely be received around December 2016, subject to the delisting and privatization process in SGX. Merlissa has incorporated ~Rp370bn divestment loss in her 2016 financial forecast.

Post the transaction, net gearing will drop to 17% in 2016-17CL, from 33% in 2015. We estimate interest cost saving of around Rp100bn but with lower earnings contribution from Minzhong which might lead to a net net Rp60-70bn cut in 2017 earnings.

In summary, Merlissa adjusts INDF’s EPS down by 6% for 17CL and 4.1% for 18CL to factor in a lower EPS assumption for the CBP division and lower Minzhong ownership (from 82.9% to 29.9%).

Despite lower earnings assumptions, Merlissa maintains her BUY recommendation and target price at Rp10,500/sh for INDF as she rolls forward her SOTP-based valuation to end-2017. The target price implies a 20x 17CL PE.

Glico Wings ice creams have hit selected markets with 16 variants retailed at Rp1,000-12,000. We followed up our previous report with a profile and price comparison to UNVR's ice creams and did preliminary analysis on the potential revenue impact.

Similar ice creams across the families. We observed that Glico Wings introduced 16 brands grouped under 4 families: Waku-Waku; Frost Bite; Jcone; and Haku. According to our channel check, they are available only in selected GTs in Java and Sumatera, targeting MTs and big cities in early Dec’16. Despite some flavor differences, we notice many of Glico Wings ice creams are priced and sized similarly to Wall’s (by UNVR) key brands, while some look comparable (Figure 10 and 11). At this moment, however, Glico Wings has fewer SKUs compared to Unilever. We also included Campina to the list, which has higher prices overall; while in terms of sizes and looks, many are not comparable.

What’s different? We see that Glico Wings is aggressive in the low-end market with Strawberry/Choco Loop that retails at Rp1,000/35ml, while UNVR does not circulate products within this range. UNVR’s smallest-sized key brand is Cornetto Mini at Rp2,500/28ml, but it is sold per box (12 pieces), not per piece. However, Glico Wings does not have local flavor ice creams (i.e. UNVR’s Dung-Dung); this should give UNVR some space while welcoming Indoeskrim’s Nusantara (by $ICBP).

How would the initial reaction play out? We have not tasted the products, but learned that the marketing strategy was quite successful in Thailand as Glico’s first international market. Thailand’s launching was early this year, where consumers went on a hunt across minimarts as they were sold out instantly. Similarly, there have been positive reactions toward Glico Wings ice creams in Cikarang, where freezers in GTs emptied out within 1 day due to excitement, based on our channel checks.

Preliminary analysis. UNVR’s market share in the ice cream market was 68% in 2015, accounting for c.15% of sales. When the JV was established, Glico Wings initially aimed for 10% share in 5 years. Should this entire 10% be stolen from UNVR’s, its revenues could decline by ca.2%. While Glico’s pricing appears to be similar to Wall’s, we think the competition may still lead to more aggressive ad spend and trade promotion. We are still Neutral-rated given the rising sales mix from the higher-margin HPC.

- Glico Wings ice cream entered the market early this month, starting with Java and Sumatra, then the rest of Indonesia next year. We recall that the JV initially targets ~10% medium-term market share, which could eventually be sizeable for UNVR (68% market share in 2015) that derives ~15% of revenues from ice cream.

- Game on! Glico Wings, the JV between Wings Food and Ezaki Glico, the largest ice cream producer in Japan, started circulating its ice cream products since November 7 in Java and Sumatra, while planning to penetrate the rest of the country next year. Glico Wings’ main products are: 1) ‘Waku Waku’ for kids; 2) ‘J Cone’ for teenagers; 3) ‘Frost Bite’ and ‘Haku’ for adults. The JV operates on a 70,000m2 factory in Karawang; all raw materials are sourced locally except for matcha that is still imported from Japan.

- Glico has been a long time coming. We recall that this JV was established in 2013, but the launches have been delayed from the initial plan of January 2015. It has been Ezaki Glico’s aspire to expand overseas given the saturated domestic market. Wings Glico itself aimed for a ~10% market share in a medium-term, targeting the two biggest players: Unilever with its Wall’s brand (68% market share in 2015) and Campina (18% share).

- How disruptive could it be? The threat to Unilever could eventually be sizeable, given that ice cream contributes about 15% of Unilever’s revenues and has been among the fastest growing products. Glico’s partnership with Wings, a prominent local FMCG company, should add value in the local distribution and marketing. We think the minimarts may also support this new ice cream competition, despite the challenge in the fridge storage size, as it could earn >25% gross margin from ice cream distribution, much higher than the consolidated merchandise gross margin of ~18%. Similarly, $ICBP is also expanding its ice cream business with Indoeskrim.

- Neutral rating; Rp41,900 price target. While we like UNVR’s improving earnings feasibility given the sales mix changes towards the high-margin HPC segment, we think more catalysts are needed to justify its valuation in the midst of rising ice cream competition, among others.

Plenty of initiatives to grow future volumes: Our recent meeting with Unilever Indonesia (UNVR) reveals that the company is indeed determined to grow its future volumes through various measures:

- Going deeper with “LeverEdge”: By the end of June 2016, UNVR plans to have completed its new distribution system called “LeverEdge”. This would enable the management to better identify sales patterns at 822 of its distributors nationwide. The implementation of this powerful geotagged system would not only deal with out-of-stock items, but also deepen market penetration in difficult-to-reach rural villages. Note that UNVR currently has some 500k stores under its own direct coverage, out of 2m total retailers (only 1.2m are relevant for UNVR). However, we note that efforts to achieve greater product intelligence in various areas, coupled with a products push into the Eastern part of Indonesia, have resulted in higher distribution costs for the company, resulting in some margin pressure in 1Q16. However, we expect this to ease in 2H16, in line with completion of “LeverEdge”.

- Early festive plan to raise demand; 100% halal certification soon: To stimulate volume demand, UNVR is starting this year’s Lebaran season early through its “integrated” and “360 degree” (exhibit 12) marketing initiatives. Additionally, all A&Ps will be activated: above the line, below the line, traditional, media and digital ads. With store displays ready, UNVR will likely follow with other activities next month as the fasting month approaches. Furthermore, Personal Care factories have been halal certified. This should be followed by detergent, which should receive its halal certification from LPPOM MUI by end of 2Q16, making all of UNVR’s products halal certified.

- 40-product launches and relaunches in 2016; Downsizing SKUs: At this stage, we continue to like UNVR’s proactive stance when it comes to product introduction under the umbrella of its 39 powerful brands (exhibits 10-15). In 2016, the company plans to implement around 40 product launches and relaunches, compared to around 55 products per annum in the past. This is in line with management’s plan to downsize its current SKUs from 1,000 (originally 1,200) to 900.

Recommendation: Maintain BUY with unchanged TP of IDR50,500 Despite our 2016-17F earnings reductions (exhibit 5) on slightly weaker-than-expected 1Q16 earnings, we retain our positive view on UNVR’s share price performance (exhibit 4), particularly as Indonesian banks face headwinds from government-related policies. Exhibit 6 shows UNVR’s constant upward re-rating in the past five years, suggesting that its expensive valuation is simply getting more expensive, backed partly by the company’s strong management as reflected in a near 125% ROE in 2015. In terms of target price, we maintain it at IDR50,500, based on 20% premium to its past 1-year average PER of nearly 50x. With 14% upside potential to our new 12-month TP, we reiterate our BUY rating on UNVR. Risks to our positive call on the stock include a weaker IDR and more intense competition, particularly in the ice cream segment with Wings’ and Glico’s entry into the fray.

We took management on the road to meet investors and came away positive on MMLP’s business outlook. MMLP is one of few companies that offers exposure to the exciting developments in Indonesia such as infrastructure development, rising e-commerce & logistic industries and lower interest rates. MMLP targets to triple its current 164k sqm NLA to 500k sqm in three years. Further, MMLP plans to team up with prominent names in the logistics business to strengthen its franchise and invite cheaper capital. We maintain our BUY rating with a new target price of Rp1,020/sh (from Rp1,035).

On the right spot MMLP is one of few companies that offers exposure to the exciting developments in Indonesia such as infrastructure development, rising e-commerce & logistic industries and lower interest rates. MMLP targets to grow its NLA to 500k sqm in three years, more than triple the current 164k sqm NLA; currently MMLP has 96k sqm NLA in the pipeline. We expect MMLP to grow NLA to 355k sqm NLA by 2018CL.

Competitive edges Some investors wonder what the key factor was when Unilever decided to go with MMLP and what MMLP’s competitive edges are. MMLP’s founders saw the longer-term opportunities that potentially arise from a rising consumer industry and infrastructure developments. Ahead, we expect a cheaper cost of capital for this pure-play warehouse developer, client list track-record, strategic assets locations and prominent partner(s) will act as competitive edges for MMLP and support its performance.

Affiliated business Some investors ask about the potential conflict of interest with its affiliated property business. MMLP plans to have a certain minimum yield-to-cost for every new investment and also plans to execute the expansions through JV companies with third-party investors. Hence, we see any affiliated transaction will eventually need to be justified by the investment thresholds and partners in the JV companies.

A bond-like investment but with potential increase in principal As an investment property company, the cashflow structure mimics a bond but with potential increases in principal value, which will be a function of property prices. In the future, MMLP has the option to monetize the ongoing projects to REITs when the company encounters better investment opportunities. We tweak our forecast to adjust for its latest results and capex; we maintain our BUY rating with new target price of Rp1,020/sh.

- Unaudited 4Q15 results show q-q growth across the board: KLBF reported a 4Q15 performance that displayed q-q growth across the board (exhibit 6), which brought the full-year 2015 net profit to IDR1,975bn, in line with our (101.3%) and consensus (97.3%) estimates. Going forward, we expect KLBF’s performance to further improve, helped by its dominance and competitive edge despite a structural change in the unbranded generics.

- Margin pressure likely to ease: KLBF’s 4Q15 gross margin was down both on a q-q and y-y basis to 45.4% on IDR depreciation, a lack of price increases, and seasonality of tenders for medical devices. However, looking ahead, we expect margin pressure to ease, supported by a stronger IDR, improvement in purchasing power due to low inflation, and lower raw materials prices on the back of low oil prices.

Outlook: Company guides for 8-10% top & bottom line growth in 2016 According to management, KLBF’s performance in January and February 2016 is not too far off its full-year guidance of 8-10% y-y growth for its top line (Bahana: 9%), and it is therefore confident that KLBF’s bottom line should also grow in tandem (exhibit 5), in line with our expectation of 10% (exhibit 3). By division, KLBF’s 2016 y-y top-line growth will likely mainly be supported by growth from its nutritional products which is expected to be in the mid-teens, followed by consumer health in the low teens, pharmaceuticals at 7-8% (in line with industry) and distribution at 5-6%. We note that management expects most of its top line growth to stem from volume growth with minimal price increases for now. However, as the economy improves, KLBF sees room for price increases at its consumer health and nutritional (exhibit 10) divisions.

Recommendation: Upgrade to BUY with unchanged TP of IDR1,480 We see three positive catalysts that could reverse KLBF’s recent market underperformance (exhibit 4): (1) Restart of injection (liquid) line operations, which contributes c.5% of 2015 sales; (2) Support from BPJS to achieve 15-20% y-y unbranded generics sales growth for 2016; (3) Management’s continued proactive stance in introducing new products such as the Love Juice (exhibit 13). Hence, we raise our rating on KLBF from Hold to BUY, particularly given the continued re-rating of consumer stocks as investors trim holdings in banks on the back of policy-risk headwinds. On valuation, we retain our 12M TP of IDR1,480, based on a 40% discount to our valuation (3-year average PE) of Unilever ($UNVR). Risks to our call: IDR weakness and government policy on possible drug price capping.